By November 1972, Agha Hasan Abedi had quit as president of United Bank and started doing business as the Bank of Credit and Commerce International out of offices in Abu Dhabi and Karachi. With him had come Swaleh Naqvi and a handful of other United Bank employees. Masihur Rahman had declined Abedi's offers to join the new bank, despite promises that he would be a millionaire within a decade.

The bank's working capital included the $2.5 million from the Bank of America and an unknown amount of money from its Arab stockholders, such as Zayed and Adham. The Arabs also became the bank's first depositors, providing about $20 million as the bank's initial cash. Abedi had also succeeded in hiring away several of his associates at Habib. They formed the nucleus of the new bank's staff, which would always be predominantly Pakistani.

Some of the early customers also reflected Abedi's heritage. The Saigol family, who had staked him in United Bank, were among the first depositors and borrowers at the new bank. More significant among the first customers were three brothers, Mustafa, Abbas, and Murtaza Gokal.

Like Abedi, the Gokals were Shiite Muslims. They had been born in India but moved with their family to Iraq. When the monarchy was overthrown in Baghdad in the late 1950s, the family had escaped to Karachi. The brothers had set up a company called Gulf Group, and its chief operating arm, Gulf Shipping Lines, had been started in 1969. The company started as little more than a tramp operation carting bulk cargoes through the Arabian Sea out of Karachi. Their first big contract was to haul cement to the Middle East and Africa; Gulf Shipping specialized in shipping to places where others were not interested in doing business.

But the brothers were driven by the vision of creating an international shipping empire and they had quickly expanded beyond the Third World. By the time Abedi founded BCCI, the Gokals were familiar figures in London and Geneva and seemed to have broken free of their confining world in precisely the way that Abedi envisioned for BCCI.

From the outset, Abedi stressed that, no matter how large it became, the bank should be viewed not as a business but as a family. He urged everyone, from tellers to executives, to bring in new business. Everyone would benefit in the end. So junior employees and senior ones alike were prepared to work for comparatively low salaries and were encouraged to work long hours and come in on weekends.

"We gave our all for BCCI," one employee later explained. "We were told it was a family bank which looked after its employees. We were told our sons would come and work for the bank."

Abdur Razzak Sakhia, a Pakistani who became global marketing director for BCCI, describes BCCI in those early days as "a culture of the East." As far as possible, the bank promised lifetime employment. "It was," says Sakhia, "a marriage for life, fitting the Eastern stable society, not Western mobile, transient society."

Abedi was referred to among employees as "Agha Sahib" and "the godfather," the latter phrase used not in the American sense of a mob chieftain, but in the sense that he represented a type of super father.

"He made the other person feel that he, Abedi, was the servant, the other person was a god," said Sakhia. "Although when we sat with him at conferences, we felt we were sitting with a god."

'~ue to his vision, Abedi did not institute a rigidly centralized management structure. Instead, he created a series of committees to oversee the various aspects of the bank's business and development. There was a general committee, which was given the task of promoting the bank's basic concept and its management philosophy. A financial committee supervised credit and lending policies, while the development committee examined ways to expand and the administration committee implemented personnel policies. Only Abedi, as president, had a formal title.

The bank's early growth was concentrated in the Gulf region, where Abedi could take advantage of his contacts. Roy Carlson, who was supervising the Bank of America's investment and trying to develop contacts, often took business trips with Abedi.

"You didn't make calls in offices. That was not the way business was done in the Middle East," Carlson said later. "Mr. Abedi would arrange luncheons, dinners, and receptions at which I would meet some of the bank's customers or potential customers. He had many strong ties there from his previous years. But there also were always new people being courted as well."

These affairs were very Middle Eastern. Often Carlson found himself seated on the floor of an ornate palace, sipping sweet tea from small silver cups. Arrayed around him would be a half dozen or more men dressed in thobes, the long, flowing, shirtlike garment, and ghutras, the traditional Arab headdress. Sometimes during these long sessions the conversation would be pierced by a high-pitched wail: "Allah Akbar"- God is great. With the call to prayer, the men would kick off their sandals and kneel in lines on small rugs, facing Mecca and chanting their prayers.

At any bank in the world, wealthy customers are treated differently from the everyday clientele. In the Arab world, where royal treatment is more than just a phrase, this practice often involved courtesies such as bestowing gifts on valued customers and performing a large number of personal services. Banking was a very personal business.

Carlson had lived in the Middle East himself, so he did not find these gatherings and frequent gifts a strange way to conduct business. Indeed, he was an admirer of the Arab people and their distinct language, dress, behavior, and thoughts. If neither he nor Abedi ever felt quite at home among them, they also never dismissed them simply because they did business in a different way.

The fledgling Bank of Credit and Commerce was positioned perfectly to take advantage of the events of 1973. The Persian Gulf region was about to become the wildest frontier in banking, and Agha Hasan Abedi's vision of a vast banking empire was about to get a jump start.

The riches of the region had been controlled for forty years by such Western companies as Standard Oil and Royal Dutch Shell. They doled out a percentage of the profits to the sheiks who owned the land and retained the bulk of the money for themselves. Perhaps more important ly, the Westerners controlled the quantity and price of the oil that came from the vast reserves beneath Arabia.

Gradually, however, the Arabs had recognized that oil was a weapon they could use. They first tried to exploit it following Israel's victory over Egypt in 1967's Six-Day War, but the efforts to reduce shipments to the West were a dismal failure. The next time, the story was different.

In 1973, when Egypt attacked Israel in an attempt to redeem its honor, Egyptian President Anwar Sadat had the promise of Saudi Arabia's King Faisal, Abu Dhabi's Sheik Zayed, and other potentates that they would assist him by restricting oil. Indeed, it had been Zayed who first advocated the oil embargo as a weapon against the West. Ten days after the war began on October 3, 1973, oil sales to nations supporting Israel were stopped. The oil embargo would last until the spring of 1974.

The embargo exposed the West's critical dependence on Arab oil. Even after the end of the embargo, things were never the same. The Arab nations and Iran, through the Organization of Petroleum Exporting Countries, exploited this dependence and sent the price of crude oil skyrocketing. By the end of 1974, the price had quadrupled to $11.65 a barrel. The Gulf was swimming in money, and its leaders needed sophisticated moneymen to help them spend it.

The entire Gulf became a giant boom town. Foreigners flooded Saudi Arabia and the smaller nations, offering their services for the instant millionaires and billionaires. Virtually all of the money in these feudal countries flowed into the royal treasuries. In the words of Khalid Abu Su'ud, a financial adviser to the crown prince of Kuwait at the time, "Petromoney is government money." And the governments were the members of the royal families. Real opportunities lay with those who had access, men such as Abedi.

As fast as the oil money was flowing in, the Bank of Credit and Commerce was growing even faster. The bank had been only a year old when the oil embargo started, but already it was operating in four Gulf states and had opened its first office in Britain. There, it was intent on catering to the large Pakistani and Asian populations. Its first branches were in Bradford, Birmingham, Wolverhampton, and London's Southall district, all areas with large immigrant populations. The offices were friendly and inviting, a sharp contrast to the aloof British institutions.

But as the Middle Eastern oil producers grew richer, Abedi focused his growth on a different "ethnic" clientele in London, which was becoming a favorite vacation spot for the newly rich Arabs. Between 1973 and 1974, BCCI branches began popping up in much fancier neighborhoods of London, such as a plush premises in Kensington High Street in the West End, a large branch along Cromwell Road, and a marble-and-glass office on Sloane Street in the heart of the fashionable Knightsbridge shopping district. Nearly half a million dollars was spent refurbishing 3,000 square feet of splendid space on Wigmore Street, space that had once belonged to the staid National Westminster Bank. The branches boasted lavish Mediterranean architecture and the signs posted in them were in Arabic and Farsi.

A new unit was formed within the bank to target "HNWs," people with high net worths. Another new division, the one that gathered the deposits that really fueled the growth, was called the "Middle Eastern Mobilisation Unit." It catered to the whims of visiting sheiks, and a fleet of Rolls-Royces from BCCI was often lined up at London's Heathrow Airport waiting for arriving customers.

Rumors began to circulate about the unconventional treatment af forded the bank's wealthy customers. Perhaps they were true. Perhaps they were stoked by resentment toward the Arabs and their dark skinned bankers. Whatever the truth, many of the bank's competitors complained that BCCI was stealing their biggest customers with its aggressive and questionable business approach.

"If you want five hundred thousand pounds in a suitcase on a Sunday night, a little guy from BCCI will come along with it. You won't get that at Lloyds," said one competitor.

Other rumors were more vicious. There was talk of flight capital transferred clandestinely out of Pakistan, India, and other nations where tight currency restrictions kept wealthy citizens from moving their money abroad. Word spread that BCCI happily provided prostitutes for visiting Arabs. Loans of millions of dollars were supposedly made on a simple request from this or that sheik. An internal bank memo support ing a major loan might read, "Obviously the sheik is good for a million dollars," according to one of the Bank of America executives trying to monitor BCCI's growth.

One of Abedi's lieutenants in London, Ameer Siddiqui, responded to such criticism by telling a Forbes magazine reporter in 1978: "We are attuned to the Arab way of working. Arabs want personal service, Asian courtesy at its zenith. So you visit them at home on occasion. Send them little gifts. They couldn't care less about the gifts. It's the thought. With all due respect to The British Bank of the Middle East or Chartered Bank, they are practicing the English type of banking. Their theory is, 'The customer should come to us.' The theory here is, 'Why should the customer come to us? We should go to the customer."'

Nowhere was that personal service better exemplified than in Abedi's relationship with Sheik Zayed, his initial patron. It was an association that provided Abedi with much of the illusion central to BCCI's growth for nearly two decades: that BCCI was always solvent because it was backed by seemingly limitless Arab oil money.

Abu Dhabi was among the most feudal of the Persian Gulf emirates. The ruling al-Nahayan controlled all of the wealth that came from oil. When the oil revenues had grown so sharply, Zayed began a major building program, dotting the bleak desert landscape with roads that led to nothing but more desert and grand buildings that often stood empty. He also recognized the necessity of becoming a more sophisticated investor and one of the things he did to further this end was to increase his reliance on Abedi and BCCI. Abedi returned the favor by playing a role in helping the sheik retain power. Zayed reportedly had fourteen wives and forty-one children plus assorted brothers and other relatives to keep happy. Indeed, staying in power depended in part on sharing the wealth with his relatives. A Pakistani banker who did not work for BCCI later recalled how well-dressed employees of BCCI would be dispatched every month to deliver a briefcase of cash to each of the sheik's brothers.

On New Year's Eve in 1973, Bhutto had delivered a speech praising the private sector and promising that no more industries would be nationa lized. The very next day, his government took over Pakistan's banks, nearly two years after Abedi had predicted it would happen. Far from a calamity for Abedi, it proved a boon, for it provided him with a ready pool of able Pakistani bankers for BCCI; since 1974, Abedi had been hiring as many as he. could recruit. Even Masihur Rahman finally joined BCCI after the nationalization.

As Abedi assembled his senior staff, a pattern emerged. Abedi came to rely not just on Pakistanis, but on a group called Mohajir, men who, like himself, had immigrated to the new Islamic nation during the partition of British India. Rahman, a Bengali, never really joined the inner circle. The Mohajirs dominated commerce and finance in Pakistan, largely because the country's quota system for native ethnic groups left them little outlet in the civil service or the military. Not fully a part of the new land, they were ripe to transfer their emotional attachment to their employer, a bank that was spreading everywhere but was rooted nowhere.

Abedi's family was growing dramatically. BCCI was becoming a truly international bank. "Mr. Abedi's dream was that we should become the biggest bank of the world in twenty-five years," recalled one of his first aides, Muzaffar Ah Bukhari. "He used to say that in our meetings and conferences. He used to look ahead. Not two years, three years, or five years, but twenty or twenty-five years. And he used to ask questions:

'Where do you see the bank after fifty years?' And the planning was done accordingly."

A symbolic story that swept through the ranks of BCCI in the mid-i 970s captured the spirit and arrogance of the bank: According to the story, Abedi supposedly disagreed with a Bank of America manager over the pace of the bank's growth. "You are counting the grains of sand," Abedi reportedly said, "while I am seeing the entire desert."

The Americans were not the only grain counters. The same Pakistani banker who had walked out on Abedi muttering "bullshit" years earlier watched his lavish marketing with great puzzlement. How does Abedi make his money? he wondered aloud in a meeting with Pakistan's minister of finance in the late 1970s. The finance minister said nothing, and one day not long after the conversation the minister's son showed up as a senior officer at BCCI.

The speed of its expansion was alarming to some executives with the Bank of America as well as to some bankers on the outside. The Bank of England expressed concern as the number of BCCI branches in Britain rose to double figures in 1976, with plans for further expansion announced.

Even though BCCI had moved its corporate offices to London, there was little that the regulators at the British central bank were willing to do. And doing anything would have required a legal stretch by the regulators, for Abedi had foreseen the possibilities of a reaction against his empire and had made arrangements to locate his legal headquarters in two countries known to have the barest of regulatory interference. Control over the British branches, and all of the bank's other branches for that matter, was divided between Luxembourg, a tiny duchy in Europe, and the Cayman Islands in the Caribbean.

Bank of Credit and Commerce International SA was registered in the Caymans in 1975. It functioned as the principal banking subsidiary of BCCI Holdings SA, which had been established in Luxembourg in 1972. Beneath these two umbrella groups, Abedi had begun forming a bewildering array of additional companies and banking entities. The guiding principle seemed to be this: Make BCCI offshore everywhere.

Both Luxembourg and the Cayman Islands were long-time bank secrecy havens, part of a small fraternity of nations that lure financial institutions of all stripes with the promise that their books would be closed to nosy outside regulators and law enforcement officials. In exchange, these countries receive big boosts to their economies. In Luxembourg, the financial services industry had grown so vital to the economy that it accounted for a fifth of the government's revenue and employed more workers than any other sector of the economy. Yet the country has never employed more than fifteen bank examiners, and Luxembourg does not even regulate bank holding companies because they are not considered banks.

There are legitimate reasons for major corporations to set up subsidiaries and affiliates in countries that offer tax and secrecy advantages. What made BCCI highly unusual was that it was a financial institution set up in two offshore countries, which meant that no single regulator could ever see the total picture of the bank's worldwide operations. The possibilities for financial trickery, such as shifting loans between the two holding companies to conceal problems, were quite real. From the point of view of, say, the Bank of England, this situation was cause for alarm. Much of the growth was occurring on the Old Gray Lady's turf.

The Bank of England has never been a lion-hearted regulator. Unlike the Federal Reserve Board or Office of the Comptroller of the Currency in the United States, the British regulator does not have its own staff of examiners. Rather, it must rely on outside auditors, the same firms employed by the banks it is regulating. Furthermore, prior to 1978, the Bank of England had very limited powers to supervise bank operations in any event.

Nonetheless, British law would have allowed the Bank of England to assert control over BCCI's financial operations if the regulators deter mined that their counterparts in other countries were not doing the job properly. In this case, however, the British chose to defer to Luxembourg and the Cayman Islands despite concerns about the institution's rapid growth.